There are 1.1 Billion smokers in the world. And 5 Trillion cigarettes consumed annually, generating $700B in revenue per year for the industry.
660B of those cigarettes are sold by $BTI to over 150M customers.
US Brands : Newport, Camel, Natural American Spirit
Global Brands : Dunhill, Kent, Pall Mall, Rothmans, Lucky Strike

Goal is to invest and grow non combustible products as fast possible while maintaining a 65% dividend payout ratio and less than 3x debt to ebitda ratio.
How's their current global positioning in non-combustible products?

Heat Not Burn : Glo is #2 in the world after IQOS.
e-vapor : Vuse is #1 after JUUL fiasco.
Oral : Velo is #1 outside US. 10% market share in US.
Goal for non-combustible products :
* By 2025, $7B in revenue from new categories.
* By 2030, 50M customers using new categories. Currently they have 13.5M customers, increased 3M in 2020.
Current splits :
10% of their revenue is from non-combustible products.
50% of profits are from US.
Emerging markets represent around 70% of volume, but they are only 25% of revenue.
They spent $27B to acquire the rest of Reynolds in 2017. Current debt to ebitda is near 3.5x, but they have been deleveraging for 3 years now. By end of 2021, it will be 3x.
Revenue has been marginally increasing from 2018.

2018, 2019 and 2020 numbers :
* Revenues : $31B, $34B and $35B
* Gross Profits : $25B, $28B and $29B
* Operating Profit : $12B, $12.1B and $13B
All 3 lines are non-decreasing for the past 3 years.
COGS has been pretty stable, although declining marginally.
* 2018, 2019 and 2020 : $5.7B $5.7B and $5.6B
This reflects the marginal decline in cigarette volume.
Guidance :
* Guidance 3-5% revenue growth and 7-9% earnings growth.
* They expect to generate cumulative free cash flow of around $55.5 billion over the next 5 years.

Needs little less than $1B in capex every year till then, because they are investing in new gen products.
At $39/share, market cap is $87.5B and enterprise value of ~$143B, because they have total borrowings of $61B and some cash in balance sheet.
Current price ratios :
* P/FCF = 8x
* EV/FCF = 13x
Thesis : Increased market share in new gen products, results in multiple expansion.

* At the guidance of $11B FCF per year for the next 5 years, and assuming 10 times FCF multiple, market cap --> $110B --> 5% CAGR.
* Dividends are currently 7.5%.
Total IRR : 5 + 7.5 = 12.5%
Currently they are using $3.6B of their FCF-after-dividends money to repay debt.
If we assume the same going forward, they would have repaid $18B, which brings total borrowings to $43B by 2025;
Enterprise Value --> ~$150B. Bringing EV/FCF multiple of 13, which is same as today.
For a perpetual owner :
* If we assume $11B in FCF going forward, that's 7.5% EV/FCF yield.
* Assuming 3% volume decline + 6% price increase per year, we get to 3% long term growth.

Total IRR --> 7.5 + 5 = 10.5%
Bonus (not included in any of the above calculations) :

They own 30% of ITC, which is worth $10B. ITC is one of the biggest consumer staple brands in India. Equivalent of Unilever and Nestle when it comes to brand mind share. Arguable ITC itself is undervalued in market cap.
Customer reviews :
* IQOS vs Glo :
* reddit.com/r/iqos/comment…
* reddit.com/r/iqos/comment…

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